Chinese tech giant Huawei Technologies is set to spin off its Intelligent Automotive Solution (IAS) unit, aiming for a valuation of up to 250 billion Yuan (USD 34.67 billion), according to media reports. The move involves selling stakes to investors, primarily Changan Auto, and marks a rare instance of Huawei divesting a business. The IAS unit, which aspired to be a leading player in the intelligent electric vehicle (EV) era, has faced challenges, leading to the decision to offload it.
Spin-off strategy
Huawei has unveiled plans to spin off its four-year-old Intelligent Automotive Solution (IAS) business unit into a new company, focusing on smart car software and components. The move includes transferring the unit’s core technologies and resources to the new firm.
Strategic investors and ownership structure
Changan Auto, Huawei’s main automotive partner, and other relevant parties are set to collectively own up to 40% of the new company. The potential ownership split involves Changan Auto and its parent company, China South Industries Group, considering acquiring around 35% and 5%, respectively. The new firm’s estimated valuation ranges from 200 billion Yuan to 250 billion Yuan.
Potential minority shareholders
State-owned automakers FAW Group and Dongfeng Motor Group are reportedly in advanced talks with Huawei to acquire up to 5% each of the new company. Huawei is expected to retain the majority ownership, holding 40% to 50% for at least the next two to three years.
Deal details and regulatory approval
The specifics of the deal, including the ownership split and valuation, are yet to be finalised and remain subject to change. The transaction is also contingent on regulatory approval. Huawei’s decision to divest the IAS unit reflects its challenges in growing the smart car business and the need to recover capital, particularly to cover research and development (R&D) spending.
Struggles and financial performance
Despite Huawei’s initial high hopes for the smart car unit as a new growth driver, it emerged as the only money-losing division among the company’s main six. The unit generated just one billion yuan in revenue in the first half of 2023, a small fraction of Huawei’s total revenue. The company has invested USD 3 billion in the unit since its inception.
Future focus and listing plans
The new company is expected to engage in R&D, production, sales, and service of intelligent automotive systems and component solutions. Huawei is considering locating the headquarters of the new firm in Chongqing, where Changan is based, instead of its current location in Shanghai. The spin-off is also seen as a move to facilitate the future listing of the business.
Leadership transition
Richard Yu, the head of Huawei’s consumer business and overseer of the smart car unit, is unlikely to lead the new firm, according to sources. The spin-off aligns with Huawei’s broader strategy and comes in the wake of the company’s previous divestment of the Honor smartphone brand in 2020.
Huawei’s decision to spin off its intelligent automotive unit reflects a strategic shift in response to the challenges faced by the business. The move aims to streamline operations, attract strategic investments, and position the new firm for growth in the evolving smart car industry.